|
 The bet was built on several converging dynamics: an ever-rising
supply of condensate; a U.S. refining system built to run heavier
crudes; and a longstanding ban on crude exports that appeared
unlikely to unwind amid partisan paralysis in Washington, D.C.
Now, as U.S. oil output reverses its five-year rise and after
lawmakers ended the 40-year-old export ban this month, oil
executives and analysts question the wisdom of nearly $1 billion
worth of so-called condensate splitters built over the past year,
and the future of another $1.2 billion planned.
Traders are wondering what will happen with existing splitters run
by companies such as Kinder Morgan Inc. They also question how the
new landscape will affect traders such as BP Plc and Trafigura,
which signed long-term contracts to buy all the output from those
facilities.
Other pending projects without guaranteed buyers could be abandoned,
experts say.
The once-restricted domestic crude not only faces increased
competition. It also is hurt by the inversion of the global oil
market, where once-abundant U.S. production is declining while
global supplies are rising. This has eliminated the price discount
that underpinned their model.
"It's a much different competitive environment now that we don't
have distressed condensate," said Sandy Fielden, an analyst with RBN
Energy.
While the same can be said of the nation's larger, older fleet of
full-scale refineries, splitters may be most exposed to the sudden
changes, given their dependence on the most deeply discounted
variety of oil.
"Why would you distill it here if you can distill it elsewhere? The
only reason you want to do it here is when it’s cheaper, but now it
doesn’t make sense," said Nick Rados, global business director of
feedstocks for IHS Chemical.
Still, many see a place for them to soak up the ongoing excess of
condensate, the super light crude abundant in the shale patches of
Texas and Ohio that standard refiners dislike.
Privately held Centurion Terminals is pressing ahead with
construction of its storage terminal with two splitters in
Brownsville, Texas, says Chief Executive Tom Ramsey, a former head
of North American oil trading at giant Swiss firm Vitol. It has a
10-year deal with an undisclosed U.S. crude marketer to take 70
percent of the output, with a view to shipping fuel across the
border to Mexico, where demand is growing.
"U.S. crude will continue to get lighter, and you have to do
something with that product," Ramsey said.
SPLITTERS OR TRADERS?
Until recently, splitters were a rare phenomenon in the United
States. Simpler and less sophisticated than refineries, they convert
condensate into unfinished distillates and naphtha, a building block
for gasoline that also can dilute heavy crude. Such oil was uncommon
in America, and thus the need for specialized equipment limited.
[to top of second column] |
But the shale boom changed that and triggered a race to build such
facilities, seen as the quickest way to profit from an export ban
that kept cut-price crude at home while allowing refined fuels to be
sold overseas.
Kinder Morgan announced the first such splitter in 2012, backed by a
long-term contract with powerhouse trader BP Plc. It started up the
second of the combined $436 million Houston plants in July.
Buckeye Partners LP built another in Corpus Christi that started up
this year, supported by Trafigura Trading LLC. Trafigura also will
buy all the output from Magellan Midstream Partners LP’s $250
million, 50,000 bpd Corpus Christi splitter now under construction.
It is slated to be complete in 2016.
Other projects in earlier stages that lack a committed buyer for the
output may not proceed, including Castleton Commodities
International's proposed 100,000 bpd splitter in Corpus Christi. The
Port of Corpus Christi said Castleton remains slated to start
construction in mid-2016, but Fielden said it may be too late with
others already filling the condensate niche.
Castleton declined comment.
If shipments of splitter output are no longer profitable, it remains
to be seen how operators and traders will share the financial
fallout. Buckeye says its contract with Trafigura is "take or pay",
which typically means the customer must pay a certain fee at the
facility regardless of whether they use it.
And even if the economics appear unattractive, trading firms may
have other outlets. Trafigura, which stores and transports more than
1 million bpd of oil, supplies naphtha as a diluent for Colombia’s
heavy crude exports.
BP and Trafigura declined comment on splitter output prospects.
"Probably the whole decision on whether to build another condensate
splitter on the Gulf Coast comes down to how those guys make out,"
said Fielden.
(Reporting By Kristen Hays; Editing by Jonathan Leff and Diane
Craft)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
